How it works

How an order becomes cash, step by step

The textbook invoice-to-cash flow has seven steps. Order to cash adds the steps before the invoice and after the due date. The payer owns a long stretch in the middle, and "paid" means something different to each side.

1. Quote and contract (sales, legal). Price, payment terms, discounts, late fees, shipping terms. What can go wrong: a concession sales promised never reaches the ERP.
2. Customer onboarding (credit, master data). Credit application, bureau report, financials, a personal guarantee from small firms, sanctions screening, tax exemption certificate, bill-to, ship-to and remit-to details. Ends in terms and a limit, or cash in advance. What can go wrong: a missing exemption certificate leaves the seller owing tax it never invoiced.
3. Order entry. An EDI 850 purchase order, portal, emailed PO, phone or ecommerce, acknowledged by an 855. What can go wrong: a wrong price, item or ship-to, which comes back weeks later as a dispute or deduction.
4. Credit check. The ERP checks each order against the limit and past-due balance. What can go wrong: a credit hold (over limit, past due, insurer limit cut) blocks shipment until credit releases it, ships part, takes prepayment or raises the limit, while sales escalates.
5. Fulfillment. An 856 ship notice; the carrier's proof of delivery (POD). What can go wrong: a short, late or damaged delivery becomes a credit memo or a retailer fine.
6. Invoiced. EDI 810, the payer's supplier portal, an e-invoicing network, emailed PDF or mail. What can go wrong: payer AP rejects it (missing PO, receipt mismatch, wrong legal entity, unregistered portal account) and the payment clock usually restarts.
7. Processed by payer AP (payer side). Matched to PO and receipt, approved, queued for a payment run: the longest step, and one the seller can't see (procure to pay walks through it).
8. Initiated. The payer mails a check or sends an ACH credit, wire or instant payment, or the seller pulls an ACH debit or charges a card. To the payer, the invoice is now "paid".
9. Received. Funds or check land at the seller's bank, lockbox or card processor. What can go wrong: unknown payer, no remittance, a short pay, a duplicate.
10. Applied. Cash application matches payment to invoices. To the seller, the invoice is now "paid".
11. Funds final. The rail's reversal window closes. What can go wrong: a returned check, an ACH return, a chargeback, a Canadian PAD claim.
12. Reconciled. Bank, ERP and processor agree, daily and at month-end close.
13. Collected, if past due. Dunning (reminders, statements, calls), then escalation: collector, credit manager, stop shipping, demand letter, agency or attorney, suit.
14. Disputed or deducted. A dispute pauses dunning and ends in a credit memo (EDI 812), a re-bill or an upheld invoice. A deduction (a short pay for a promotion, pricing, shortage or fine) is applied partially and worked as a case against the POD or promotion agreement.
15. Closed or written off. Paid in full, credited, written off against the credit-loss allowance, or sold to a factor.

Steps 10 and 11 come in either order: a lockbox check is often applied the same day and can still bounce, and an ACH debit can be applied and then returned. Model "applied" and "funds final" as separate states, with a reversal window per rail.

Most of the wait is the agreed term. The Credit Research Foundation's median DSO (days sales outstanding, the average days to collect) was 37.50 in Q2 2026, and only 3.70 of those days were lateness, so on average payers are only a few days late. Deductions start upstream too. CRF's last non-vendor survey (2012) ranks pricing, promotions and shortages as the biggest by dollars and better order entry as the best fix, which suggests the contract and the order decide most of what goes wrong later.

Ways to get paid, compared

Payer costs are in procure to pay.